How much tax will I pay on my savings interest?

Sam Harris
July 2025 • 2 min read

How much tax will I pay on my savings interest?

Working out how much interest you’ve earned across all your accounts and what allowances are available to you can be a challenge. The aim of this blog post is to help you understand the basics.

Interest is earned on the cash you deposit in a variety of financial products, such as savings accounts, bonds and cash ISAs. As you are probably aware, interest earned within ISAs is not taxable.

For everything else, these are the main allowances that can be used to mitigate your tax liability on your savings income:

Personal Savings Allowance (PSA) – your personal savings allowance is based on your marginal rate. The allowance is £1,000 for basic rate and non-taxpayers, £500 for higher rate taxpayers, while additional rate taxpayers have no personal savings allowance at all
Personal Allowance – the current personal allowance is £12,570. If your personal allowance has not been entirely used up by income from other sources, you may use it to offset your savings income
After that, we have the Starting Rate Band (SRB) – the SRB applies to individuals with earned income below £17,570. The full SRB is £5,000 but only applies to non-taxpayers (ie if your earned income is below £12,570) and is then reduced by £1 for every £1 of earned income above the personal allowance, which is why you lose entitlement to the SRB once your earned income reaches £17,570

Of course, the amount of tax you’ll end up paying on savings income depends on a variety of factors and your personal circumstances. Working it out can be a complex and stressful task. That’s where we come in.

At Solomon’s, we’re not accountants but we can do these calculations for you (your Accountant should also be able to assist, if you have one).

Anybody with more than one source of income (where one of those sources is ‘savings interest’), needs to be aware of these bands, thresholds and allowances to ensure that you can double-check that you are paying the correct amount of tax over to HMRC when your circumstances are considered as a whole.

If you think you might be affected by these issues (and we aren’t already aware of them), please drop us a line and we will be happy to assist.

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How much tax will I pay on my savings interest?Jemima Thomas2025-11-18T10:34:04+00:00

TTAFC Allowances

Daniel Liddicott
March 2025 • 3 min read

TTAFC Allowances

Following the well-publicised removal of the Lifetime Allowance (LTA) for pensions from the beginning of the 24/25 (6^th April 2024), two new allowances related to pensions were created in its place. Trust the Government to remove one allowance, only to introduce two more!

Before we get ahead of ourselves – a brief reminder. The LTA for pensions was the amount that an individual could save into pensions, and subsequently take from pensions, before being hit with an additional tax bill. Potentially up to 55%! The last LTA figure before it was abolished was £1,073,100. This remains an important figure, even with the removal of the LTA.

The maximum tax-free lump sum that could be taken from pensions (those without any protected tax-free cash entitlement) was £268,275. This is 25% of the old LTA figure.

Now, rather than allowing tax-free lump sums from pensions that are greater than this figure, the Government has brought in the Lump Sum Allowance (LSA). This allowance is also £268,275, effectively maintaining the same maximum tax-free lump sum amount as if the LTA was never abolished.

The second new allowance is called the Lump Sum & Death Benefit Allowance (LSDBA). This allowance essentially mirrors the last figure for the LTA (£1,073,100) and limits the amount that can be paid out to beneficiaries as a lump sum on death of the pension holder. Any amount greater than the remaining LSDBA is potentially liable to income tax. Any tax-free cash taken from pensions during life will gradually reduce this death benefit allowance over time.

Claiming what you are entitled to

As a result of the rule changes over the years, you may be entitled to greater LSA and LSDBA amounts than HMRC currently have on record for you. This will likely be the case if you took tax-free lump sums from your pensions at times when the LTA figure was different from £1,073,100. It has changed 10 times since its introduction in the 2006/2007 tax year.

HMRC calculate your remaining LSA and LSDBA allowances using £1,073,100 as the starting figure as this was the last LTA amount. However, their calculation will be incorrect if you took tax-free cash in any of the years shown above in which the LTA was not £1,073,100.

If you think that you might be one of those people, please let us know. We are working through our records to determine and get in touch with those of you who may need to apply for a certificate to reinstate the tax-free cash allowances that you are entitled to. These are called Transitional Tax-Free Amount Certificates (TTAFC). Apologies for all the acronyms throughout this piece!

Whilst the LTA has officially been abolished, it still casts a relatively large shadow over the pension planning landscape.

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TTAFC AllowancesJemima Thomas2025-03-28T14:53:23+00:00

Will Reeves Slash Cash ISAs?

Dominic Thomas
Feb 2025 • 2 min read

Will Reeves Slash Cash ISAs?

Hopefully you will know that I am a fan of having cash, we all need it for ‘liquidity’. In plain English – that means having money easily available without needing to sell anything. This is usually best for your emergency fund. This is a number (sum) that helps you to sleep well at night and quite frankly depends on your life stage. A measure of 3, 6 or 12 months of normal spending is helpful plus planned spending projects (not normal spending) over the next three years.

Keeping more than this in cash will likely erode the value of your spending power. You are likely to be going backwards. You might say “backwards, but at least with certainty – compared to investments” well, that is true in the short term but in the long term, whilst nothing is certain, we have yet to see a period when cash beats shares over 10 years or longer.

So, the news that the Chancellor (Rachel Reeves) is contemplating either scrapping or reducing the Cash ISA allowance from £20,000 to £4,000 may be a surprise for some of you. It’s because in theory holding cash doesn’t really serve anyone very well, least of all the economy, but investing in businesses … well that helps create wealth. That’s why she is considering it.

It would seem that this will only start from the new tax year (if at all) and nobody is expecting her to tell us that you can only hold £4,000 in total in Cash ISAs – which would be highly unlikely. Whilst you may find this an unwelcome change, it’s worth remembering that Cash ISAs always had a lower allowance until the 2015/16 tax year when the allowance became £15,240.

As we are still in the 2024/25 tax year data isn’t up to date, honestly in this digital age, I don’t understand why HMRC are so behind. Anyway, interest rates obviously improved over the last couple of years and more people used Cash ISAs, 63% of contributions to ISAs in 2021/22 were into Cash ISAs. People forget the impact of inflation which is still not within range, and Cash ISAs continue to provide a negative return. Quilter did some research and found that £10,000 into a Cash ISA in December 2012 would now be worth £11,955 but when adjusted for inflation that’s really £7,918. In contrast, the same amount invested into a global shares index fund would be worth £33,526 (£22,221 after inflation).

You may have seen my inflation diagram about a first-class stamp, something we can all relate to and perhaps why there are fewer Christmas and Birthday cards being sent.

1985: 17p
1995: 25p
2005: 30p
2015: 63p
2025: £1.65

Your money has to keep pace with inflation. 10 years races by, but holding your hard-earned money in cash that provides a negative return is only good for short-term projects and emergency funds.

The current ISA allowance for 2024/25 is £20,000. The Junior ISA allowance (for those under 18) is £9,000.

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Will Reeves Slash Cash ISAs?Jemima Thomas2025-02-27T11:05:24+00:00

THE KIDS ARE ALRIGHT

TODAY’S BLOG

THE KIDS ARE ALRIGHT…

Believe it or not, the tax year end is not so far away. Tuesday 5^th April looms menacingly on the horizon … how time flies! It seems like only yesterday that we were doing this dance, even though I’m sure that for many of you, the last year has felt like a particularly long and tough one. You can count me among your ranks.

As that time of year approaches, we will be frequently reminding you of the prudence in making the most of your ISA allowances for the current tax year. If you haven’t thought about this yet, please consider this your first call to action!

As a reminder, for the 2021/22 tax year, the allowances are £20,000 (per individual) for subscriptions into ISAs, and £9,000 for subscriptions into Junior ISAs (JISAs).

So that this is less of a pure reminder and somewhat informative, I will let you in on a lesser-known fact about ISAs and JISAs … 16 and 17-year-olds are able to hold both a JISA and an ISA simultaneously.

Not only are they entitled to hold both a JISA and an ISA, they are also entitled to BOTH of the annual allowances that come with them. This means that the amount that can be saved into ISAs on behalf of these teenagers increases from £9,000 per year to £29,000 per year (all tax-free of course).

If you are looking for ways to set more funds aside for your children (or grandchildren), this might be one of the best ways to do it. I know that some of you have utilised this benefit already.

So, whilst we have a little time before April hits us, please make sure that any intended ISA top-ups are made in good time to use up those allowances for the current tax year. We would ask that all tax-year-end-sensitive investments are made by 25^th March 2022.

We are only an email or phone call away if you need any help.

And remember that the kids are alright!

Daniel Liddicott
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on our blog which gets updated every week. If you would like to talk to us about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

THE KIDS ARE ALRIGHTJemima Thomas2025-01-28T09:55:24+00:00